The Sale of Adak Alaska - Birders and Bidders
Adak, Alaska. The most western point of the United States, twenty-five miles across, 1269 miles due west of Anchorage in the middle of the Bearing Sea, as close to Russia as the USA but not close to anywhere. Current year round population is between fifty and eighty, depending on who you talk to. There are two scheduled flights per week on one of six known Boeing 737 “Combi” aircraft designed to carry both cargo and passengers. There is no guarantee of landing due to weather and many a flight have been turned back to Anchorage to wait the four days until the next scheduled flight. The passenger list for every three hour flight includes a Boeing maintenance man for any maintenance issues that develop during the seven hour round trip and a TSA Agent to process the people leaving the island on the return flight. There are no scheduled sea vessels, cargo ferries or barges. The island has one and a half restaurants, one bar known as the ASBAG (Adak Sports Bar and Grill) and no hotels. There is very limited cell service and the internet is so slow and expensive that dial up speed is a fantasy. June is the best time of the year to be there given the temperature, which rarely exceeds forty five degrees Fahrenheit, and is frequently overcast with rapidly moving cloud formations, fog and rain. The grocery store is housed in a residential garage and has a handful of the basics.
Adak, Alaska, 2013.
Adak, approximately 600 miles west of Dutch Harbor where Discovery Channel’s “Deadliest Catch” is filmed, was once the home of a US Naval base being a strategic location between the USA, Japan and Russia and at that time had a population of nearly seven thousand people. That was a long time ago and since the departure of the military, the island population has steadily declined. When the military abandoned the island, the government worked out a deal with the Aleuts to take over the island and gave them property and cash as a settlement.
In 2007, Icicle Seafoods took over an existing 250,000 sq. ft. seafood processing facility located in the Adak harbor. They upgraded the plant and operated it for several years but faced with new Government established quotas to protect the sea lion population, they recognized that under their current cost structure, profitability was not feasible. They surrendered the assets of the USDA guaranteed loan back to the Rhode Island based bank, who both became my clients.
Always intrigued and energized by a challenging deal that requires a multi-faceted approach, Adak Seafood was my perfect project. I knew that my stellar marketing team would rise to the occasion and I would drive them insane at all hours of the day and night as I came up with newfangled ideas to bring the right buyers to a bidding forum. Impossible to inspect before crafting the proposal that was requested within 24 hours, I decided to pull the all-nighter to create the project specific proposal. As promised, the decision maker decided by the end of the week and awarded Hilco the project.
The apparent challenges were seemingly insurmountable. Small island, no scheduled transportation, no machinery movers, no hotels, and a surplus of bad blood between the secured party and the landlord fueled by lack of trust ensuing from a tortured history. To further complicate matters, the landlord had a claim on certain assets within the facility that the bank had a secured interest in. Doing some quick due diligence indicated that the cost to pack and ship the equipment exceeded the market value of the assets if sold piecemeal. We had a genuine challenge ahead of us. Logic indicated that success would only be enjoyed if we could find a turnkey buyer for the entire facility. In order for that to be a possibility, both the landlord and the secured party would have to cooperate with each other, and that was not going to happen given the existing relationship between the two. I had to first gain enough trust of both the secured party and the landlord to become a “Marriage Counselor” to strike a deal where there would be an allocation of sales proceeds based on a mutually agreeable formula in the event of a bulk sale. I was able to convince the Bank that it was their only hope and I got their blessing to approach the landlord. The landlord was also remarkably reasonable. I was able to put a deal together where there was a revenue share structured from an allocation of proceeds determined by values in an old appraisal. Once that was accomplished, I was set to market the assets in bulk vs. piecemeal. We embarked on our site preparation and multi-faceted marketing campaign.
It took two days to get to Adak from Detroit. I could not risk missing the Thursday flight from Anchorage to Adak, so I had to arrive in Anchorage a day early to avoid any unforeseen delays that would cause me to miss the flight. While in Anchorage, I met with some strategic buyers in the resale and installation business. Based on our meeting, they committed to making the four-day journey to inspect that facility.
Our flight from Anchorage departed late Thursday afternoon on the Boeing 737 combi aircraft. The front half of the plane was configured for cargo containers and the back half for passengers in twelve rows in a three by three configuration for a total of seventy two seats. The people on the one third occupied flight were of various types. Our one known buyer was present, along with three other potential unknown bidders. Also on board was a world-renowned bird photographer trying to round out his annual selection of photos for his website and a globetrotting retired CBRE real estate guru now turned pilot/photographer. The three-hour flight went quickly as we flew over some pretty amazingly beautiful terrain. We landed in Adak where in the airport waiting area was a small crowd of people who had gathered to board the return flight to Anchorage. One of the people in the boarding area was a reporter from the Alaskan Public Radio Station “KUCB” waiting to interview me before she left the island. Deemed as quite newsworthy, this sale of this 250,000 sq. ft. facility had significant impact to the island being one of the island’s only employers.
Our transportation was a $100 per day rusted out 1987 Ford Bronco formerly used by the fire department. Only the driver’s door worked so it was challenging to get in and out of the vehicle. Our accommodations were approximately four tenths of mile from the airport and were actually quite nice. Housing was configured in rows of attached metal clad two story apartments formerly used by the military. Each had two bedrooms and two bathrooms upstairs and a kitchen, small dining room, living room, laundry room and foyer come wind breaker downstairs. There were specially designed translucent downward facing fiberglass window cowls on some of the upstairs windows so that in the winter months of blizzard conditions, windows could still be opened to provide somewhat controlled snowless airflow. There was a television, which I never turned on.
Our first meal was at one of the two eating places on the island. It was a Mexican restaurant that served tacos, burritos, beer and deep-fried snickers bars, and yes, they took credit cards. After we ate, we stopped at the local grocery store housed in a two-car garage for some simple necessities.
On Friday morning, we had breakfast at a small wood burning café for a homemade meal before we headed out to the plant for our inspection period. When we arrived, there were several people already eating and some of them were on our flight from the day before. One of them was a world-renowned aviary photographer who came to augment his annual collection of bird photos for his website. We quickly launched into conversation about photography, compared cameras, lenses and made friends. We agreed to meet later for a photo tour of the island.
Our inspection period for the facility was scheduled to accommodate buyers throughout the weekend as we were all captive until our flight on Sunday. We actually had about four people show up for the inspection over the weekend and one additional buyer that had flown in the day before our arrival on his corporate jet. Bingo! We had the potential ingredients of an auction sale.
I have always been of the opinion that keeping bidders apart is a sound strategy as some of the unscrupulous ones will figure out ways to collaborate to reduce bidding. Adak was a very unusual sale as all of my buyers were living together for four days. We had an end user who wanted parts; a small domestic seafood company representing a large Chinese conglomerate developing a fishing fleet and processing organization. We also had two dealers, one who would buy to resell any or all of the facility’s components and the other representing opportunistic wholesale buyers. There was nothing that I could do to prevent any kind of partnerships that would ultimately undermine the sale by turning my five potential bidders into one. I figured that if I stood any chance to generate success for my clients, I needed to spend a lot of time with my bidders convincing them that I, not their competitors, was the key to their success. We ate most meals together and spent our Friday night at two adjoining round tables at the ASBAG, eating fried food and drinking until the sun went down, well after midnight. Funny thing, we all bonded as men discussing our respective backgrounds and experiences while each of us discretely ogled the mysterious solitary female seated at the bar with increased frequency as the drinks flowed with a similarly mirrored frequency. For the moment, we forgot about our respective roles as sellers trying to get more from the buyers who were trying to buy for less.
We spent almost four days on that island. There was not much to do if you are not a photographer, hiker or a wildlife enthusiast. I am a photographer so I enjoyed my time of cell phone free, slowly-paced reflective quiet time with my cameras roaming the island. I spent better than half a day with the bird photographer Brian Young, driving around looking for any of the 143 different species of island and migratory birds. I felt as though I was with Stu Preissler or Brad Harris, the main characters of the movie “The Big Year” played by Steve Martin and Jack Black, in search of the holy grail of spotting the most birds in a given year. I was able to see the beauty of the island’s landscape, contorted land formations from the harsh environment, rapidly changing weather, abandoned houses once occupied by military personnel and the scientific installations installed by the government for seismic activity and secretive military reconnaissance.
Given the logistical challenges of conducting the webcast auction sale from this small disconnected island, we decided to webcast the sale from Anchorage the following Tuesday. By the time we left the island on the Sunday evening flight, I had made some very interesting acquaintances and made a new friend who I am still in contact with. On the flight from Adak to Anchorage, I knew almost fifty percent of the thirty-five people on board and there was an unusual and comfortable camaraderie amongst us all as we all now had a common bond. I think we all shared the euphoria of our successful trip and the romanticized escape from the unknown where we were the island’s temporary prisoners. Even though the levity of the atmosphere of the Anchorage bound flight was noticeably lighter and happier than that of the Adak destined flight just four days earlier, I was reticent and melancholy to leave.
We spent the Monday before the Tuesday morning sale at the hotel where we would webcast the auction from. We met with bidders in an effort to glean the amount of developing interest and to see if we could get a bidder to provide us with an opening bulk bid for some reasonable bid protection. One such bidder appeared to be willing to provide such a bid in an amount that would make the sale a success. The City of Adak was also present as a qualified bidder but not because they wanted to buy the facility, but rather to protect this strategic installation from being bought by someone who would dismantle it and move it off island. They informed me that they would probably not bid if they saw an end user bidding who would re-open the plant to create jobs for the small island community.
We had ongoing conversations with the large seafood producer who indicated that they would be interested in the facility, if the price was right. When they told me what their anticipated buy price was, I told them that they needed to add a zero to the left of the decimal point otherwise they did not stand a chance of winning. That was all bravado on my part in a serious game of chicken hoping that I could get them to raise the offer to an amount that would satisfy my three clients. They told me that I was crazy and we ended the call. Damn.
The morning of the sale arrived after a fairly sleepless night. I awoke early with a fairly serious abdominal pain that subsided soon enough for me to carry out my responsibilities as the auctioneer to conclude the six week effort. This turned out to be my first bout of diverticulitis (and hopefully the last) that landed me in the hospital thirty-six hours later. I later learned that this resulted from the bag of sunflower seeds that I bought from the local store and consumed, with the shells.
The morning was not getting better. Our one potential bulk bidder informed me that he was not able to pull his bid together, so he was out. Our other key potential bidder representing the large expanding Chinese fishing conglomerate was glaringly absent. I delayed the start of sale in order to call him to make sure that he was coming to only learn that he had chosen not to attend the auction because his client opted out as he no longer wanted the facility. At the start of the sale, it appeared as though all efforts were for naught and we might not be able to sell the assets for anything meaningful. We worked very hard to align all of the variables to make this event success and I wanted to generate positive results for my clients. I called them to update them as to what had transpired in an effort to manage their expectations should our worst fears be realized.
After reading the terms and conditions of sale and explaining the bidding procedures to our small crowd of ten onsite bidders and another nineteen web participants, USDA representative in the room and the bank listening in on the webcast via phone, I began the sale seeking a bulk bid for all assets subject to a piecemeal offering. Our large seafood operator began the bidding online with a $250,000 bid, which was at the level of his original offer. Fortunately, we use a proprietary webcast technology that provides anonymity to our bidders. The City of Adak, who did not want to bid against an in place operator, had no choice but to bid $350,000 in order to protect the island’s largest asset. Our online user then bid $450,000. The bidding continued up to $550,000 when our dealer in the room surprisingly bid $650,000. The bidding began to heat up and raced up to $1,500,000, and then the dealer placed his last bid at $1.6 million. At that point I announced that we would not be soliciting piecemeal bids and the high bulk bidder would be awarded the facility in bulk without further competition of the piecemeal bids. The cloaked web bidder bid $1.7 million when the city put in the final winning bid of $1.8 million plus the 16% buyer’s premium for a total of $2,088,000.
As I cried out the archetypal “going once, going twice” before yelling the word “sold”, the dichotomy of the simultaneous relief and the euphoria began to set in with the realization that I would not have to deliver devastating news to our clients, but rather that we exceeded our high end pre-auction estimate by $88,000 selling the facility intact for the benefit of our clients as well as the local community.
Two hours later, as I settled into my seat on the flight from Anchorage to Detroit, I felt a warm inner glow of humbled satisfaction that my belief in our ability to generate success for our client as promised, was once again realized.
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